In 2011, Verizon Wireless purchased data centre operator Terremark Worldwide for $1.4 billion and started a new venture into the hosting and colocation services businesses. At the time, many carriers had also invested into the data center business, seeking to take advantage of their infrastructure and mobility know-how. However, Reuters has reported that the North American carrier has started a confidential auction in order to sell off its data center assets as the business seeks to concentrate on its core offerings. We have already seen Verizon selling off much of its landline business and wireless towers; Verizon is said to be hoping to raise more than $2.5 billion from this sale. However, as the auction is confidential, neither Verizon nor its advisers, Citigroup, would comment on the report.
We understand that the auction includes forty eight data centers, which in aggregate generate earnings (before tax, depreciation and amortization) of around $275 million a year. One of the pressures facing the carriers is that the enterprise data center market has changed in recent years: customers are seeking a more sophisticated yet cheaper way to manage their data. Carriers must invest considerable sums of money into the business in order to tread water, and face stiff competition from more specialised data center operators. We've seen other carriers either agree to selling data centers, or at least explore these options: AT&T are known to have been in negotiations to sell on their data center business for some months now. Back in November 2015, CenturyLink announced it was seeking "strategic alternatives" for its data center business.
One of the reasons why Verizon Wireless is retrenching to focus on its core cellular business is because whilst it, along with AT&T, is one of the larger national North American carriers, it faces stiff competition from the two smaller national players, Sprint and T-Mobile US. Although Sprint and T-Mobile US are busy engaged in a competitive knife-fight, their offerings are tempting customers from either AT&T and Verizon Wireless. In the face of a deteriorating outlook for the data center business and the need to keep in touch with the price wars in the cellular market, Verizon's decision to sell looks like a relatively easy one to make.